Podcast
Questions and Answers
Which of the following is the primary purpose of internal controls within a company?
Which of the following is the primary purpose of internal controls within a company?
- To prevent all possible errors in financial reporting.
- To maximize efficiency in production and operational processes.
- To guarantee profitability and increase shareholder value.
- To reduce the opportunity for fraud and provide reasonable assurance that company objectives will be accomplished. (correct)
In a bank reconciliation, which of the following items would typically require an adjustment to the book balance?
In a bank reconciliation, which of the following items would typically require an adjustment to the book balance?
- Outstanding checks
- Errors made by the bank
- Bank service charges (correct)
- Deposits in transit
Which element of the fraud triangle relates to an employee feeling justified in committing fraud due to perceived unfair treatment?
Which element of the fraud triangle relates to an employee feeling justified in committing fraud due to perceived unfair treatment?
- Rationalization (correct)
- Pressure
- Control Environment
- Opportunity
What is the formula to calculate net realizable value of accounts receivable?
What is the formula to calculate net realizable value of accounts receivable?
A company estimates uncollectible accounts expense using the percentage of sales method. If total credit sales are $500,000 and the estimated uncollectible percentage is 1%, what is the uncollectible accounts expense?
A company estimates uncollectible accounts expense using the percentage of sales method. If total credit sales are $500,000 and the estimated uncollectible percentage is 1%, what is the uncollectible accounts expense?
When writing off accounts receivable, what is the effect on the accounting equation?
When writing off accounts receivable, what is the effect on the accounting equation?
When prices are rising, which inventory costing method generally results in a higher cost of goods sold (COGS)?
When prices are rising, which inventory costing method generally results in a higher cost of goods sold (COGS)?
Which of the following is an example of an intangible asset?
Which of the following is an example of an intangible asset?
Using the straight-line method, calculate the depreciation expense for an asset costing $50,000 with a salvage value of $10,000 and a useful life of 5 years.
Using the straight-line method, calculate the depreciation expense for an asset costing $50,000 with a salvage value of $10,000 and a useful life of 5 years.
A company sells a long-term asset for less than its book value. What is the result of this sale?
A company sells a long-term asset for less than its book value. What is the result of this sale?
Flashcards
Internal Controls
Internal Controls
Policies and procedures designed to reduce fraud and provide reasonable assurance that company objectives are accomplished.
Separation of Duties
Separation of Duties
Separating duties to prevent fraud and errors.
Bank Reconciliation
Bank Reconciliation
The process of comparing the bank statement with the company's cash balance to identify any differences.
Deposits in Transit
Deposits in Transit
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Outstanding Checks
Outstanding Checks
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Fraud Triangle
Fraud Triangle
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Net Realizable Value
Net Realizable Value
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Uncollectible Accounts Expense
Uncollectible Accounts Expense
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Depreciation
Depreciation
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Straight-Line Depreciation
Straight-Line Depreciation
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Study Notes
- Second Exam consists of 27 multiple-choice and four short-answer questions to be completed in 80 minutes.
- The exam is accessible from 6:00 am on Friday, February 7th, until 11:59 pm on Monday, March 3rd, via McGrawHill Connect, proctored by Proctorio.
Chapter 4
- Internal controls serve to diminish fraud opportunities and ensure objectives are met through company policies and procedures.
- Internal control procedures for cash receipts involve separating duties.
- Bank reconciliations adjust both bank and book balances to reflect the true cash balance.
Adjustments to the Bank Balance
- Include deposits in transit and subtract outstanding checks.
- The formula to find true cash balance: Unadjusted bank balance + Deposits in transit - Outstanding checks = True cash balance
Adjustments to the Book Balance
- Include accounts receivable collections and interest earned, while subtracting bank service charges and non-sufficient funds (NSF) checks.
- The formula for true cash balance: Unadjusted book balance + Accounts receivable collections + Interest earned - Bank service charges - NSF checks = True cash balance
- Entries and financial statement impacts from adjustments
Financial Statement Audits
- Help ensure integrity, and prevent manipulation, emphasizing the significance of ethical practices.
- The fraud triangle includes opportunity, rationalization, and pressure.
Chapter 5
- Operating activity cash flows can be determined when credit sales exist.
- Net realizable value of accounts receivable is calculated by subtracting uncollectible accounts from accounts receivable.
- Uncollectible accounts expense is determined using the percentage of sales method, through percentage by number of sales.
- Uncollectible accounts expense is calculated by multiplying sales by a determined percentage.
- Recognize the overall impact of writing off accounts receivable on financial statements.
- Businesses allow customer purchases on account to increase sales.
- Calculating interest revenue requires knowing when a loan is outstanding for a partial year.
- End-of-year adjusting entries are a crucial part of recognizing interest revenue.
- Differences between FIFO and LIFO impacts costs of goods sold when prices change.
- Calculations of COGS and ending inventory are impacted by FIFO and LIFO.
Chapter 6
- Assets can be tangible or intangible
Tangible Assets
- Include property, plant, and equipment (PPE), which depreciate, and natural resources, which deplete
- Intangible assets consist of patents, copyrights, and amortization
Depreciation
- It accurately shows market value based on time
- Depreciation expense and accumulated depreciation are calculated using the straight-line method
- Straight line depreciation formula: (Asset cost - Salvage value) / Useful life = Depreciation expense
Depreciation Recognition
- Impacts the financial statements
- Depreciation is calculated using units of production in current year
- The formula for units-of-production depreciation, which impacts financial statements: (Asset cost - Salvage value)/ Total estimated units of production) x Units of production in current year = Annual depreciation expense
- Determining gain or loss on the sale of a long-term asset.
- Amortization expense is calculated with the formula: Asset Cost / (smaller of useful life, legal life) = amortization
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